im not sure why people keep talking about black swans. i simply want to know how someone can think they have a statistical edge when they don't know all the variable in the market. i was just pointing out 1987 as an 18SD event which would disprove anyones statistical evidence of an actual edge.
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edge?
- Thread starter Took2Summit
- Start date
im not sure why people keep talking about black swans. i simply want to know how someone can think they have a statistical edge when they don't know all the variable in the market. i was just pointing out 1987 as an 18SD event which would disprove anyones statistical evidence of an actual edge.
What I find kinda amusing is, people say "but the distribution isn't normal" as if it discounted the severity and frequency of crashes observed.Quote from Took2Summit:
im not sure why people keep talking about black swans. i simply want to know how someone can think they have a statistical edge when they don't know all the variable in the market. i was just pointing out 1987 as an 18SD event which would disprove anyones statistical evidence of an actual edge.
i'd try to propose a simple answer here.
perhaps you're a good fundamental trader who makes sound decisions based on various market variables.
most technical traders (who do have statistical edges) simply Not!
just 2 cents!
perhaps you're a good fundamental trader who makes sound decisions based on various market variables.
most technical traders (who do have statistical edges) simply Not!
just 2 cents!
Quote from Took2Summit:
im not sure why people keep talking about black swans. i simply want to know how someone can think they have a statistical edge when they don't know all the variable in the market. i was just pointing out 1987 as an 18SD event which would disprove anyones statistical evidence of an actual edge.
The price change distributions of most financial instruments are platykurtotic (ie fat tailed.) Some of the more sophisticated econometric models do attempt to account for kurtosis, and skew. Skew and kurtosis exist because of swan events, fear, greed, insider knowledge, fraud, etc
Markets are far more complex than even Nobel Prize winners are able to accurately model. True edge doesn't necessarily come from a model, but from things like knowledge of order flow and insider knowledge.
Markets are far more complex than even Nobel Prize winners are able to accurately model. True edge doesn't necessarily come from a model, but from things like knowledge of order flow and insider knowledge.
Quote from panzerman:
Here is Taleb's startegy to deal with swan events:
Invest your bankroll in t-bills, and use the interest income to buy deep OTM options.
In essence, take no risk and take enormous risk at the same time. The only problem with this strategy is that it's not been documented to either work or fail. I don't recall Taleb ever divulging if it worked for him or not. You could easily bleed to death waiting for a swan event to occur to make your fortune.
you're kinda right - his strategy was to put a majority (like 90%) in t bills and use the rest for playing black swans.
another point - now you get no interest from t-bills and it's going to be that way for a long time (at least the next 2 years).